Bank of Canada Governor, Tiff Maclem, said that the new financial barriers set by the federal government revealed in its fall economic statement are beneficial for monetary policy.

During a press conference on Wednesday, Maclem spoke about the federal government's updated financial forecasts as well as the new rules aimed at reducing the deficit.

"From a monetary policy perspective, the fall economic statement indicates that the government will not add new or additional inflationary pressures over the next two years, which is the critical period during which we will look to lower inflation and return it to normal levels," Maclem said, adding: "The fall economic statement also includes some new short-term financial barriers, and from a monetary policy perspective, I think that is beneficial."

The fall economic statement also presented new commitments on how the federal government will handle its financial resources, including setting a target to keep the deficit below one percent of GDP starting from 2026-2027.

The Liberals also aim to keep the current fiscal year's deficit at or below the spring budget forecast of $40.1 billion and to reduce the debt-to-GDP ratio in 2024-2025 compared to the expectations in the fall economic statement.

The new financial targets come at a time when the federal government is facing calls to avoid fueling inflation through further spending and to consider the impact of economic slowdown on government revenues.

Maclem has previously urged fiscal policy to move in the same direction as monetary policy, noting that spending plans at all levels of government over the coming year collectively threaten to feed inflation.

Earlier today, the governor delivered a speech to the St. John’s region chamber of commerce, where he warned that fighting inflation half-heartedly and coexisting with its consequences would be a grave mistake.

He also acknowledged that interest rates might already be high enough to bring inflation back to target but emphasized the central bank's readiness to raise interest rates further if inflation does not decrease.

His public appearance came one day after the release of new inflation figures showing that Canada's inflation rate dropped to 3.1 percent in October, down from its peak of 8.1 percent in the summer of 2022.

Maclem’s speech also compared the current battle against inflation with the inflation of the 1970s, highlighting the similarities and differences between these two periods.

He said that inflation in the 1970s was also triggered by global events, leading to similar consequences to what is happening today: people felt robbed because their wages did not keep up with the cost of living, and labor strikes were long and frequent.

While policymakers tried price and wage controls as well as slowing money supply growth, the governor said those policies were ineffective. Maclem said: "The government and the central bank were not ready to continue on the path - to restrain government spending and tighten monetary policy sufficiently to wrest inflationary pressures from the economy."

He said the result was that Canadians lived with high inflation for more than a decade, and by the time policymakers realized more effort was needed, inflation was already entrenched in the economy.

The Bank of Canada responded to rising inflation starting in March 2022 by rapidly raising interest rates to the highest level in decades. The strong interest rate hikes have slowed spending in the economy as people face higher borrowing costs, especially many homeowners with mortgages.

The central bank also chose to keep the key interest rate steady at five percent in its last two meetings amid economic growth halting. It said it is also taking into account that many Canadians will have to renew their mortgages at higher interest rates, meaning more economic pullback is on the way.